Consider the Disaster Risk Decision Tree Model

question 122

Multiple Choice

Consider the disaster risk decision tree model. Using the notation from the model, what is the expected monetary value (cost) of choosing two suppliers?

• A) 2C
• B) [1 - P(2)] × 2C + P(2) × (L + 2C)
• C) 2C + SL
• D) P(2) × 2C + [1 - P(2)] × (L + 2C)
• E) 2C + (S + U²)L

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Definitions:

Long-Run Minimum Cost

The lowest cost at which a firm can produce any given level of output in the long run, when all inputs can be varied.

Average Total Cost Curve

A graph that shows the cost per unit of output at different levels of production, illustrating how average total cost changes with changes in output.

Short-Run

A period in which at least one of a firm's inputs is fixed and cannot be changed.

Average Fixed Cost

The fixed costs of production divided by the quantity of output produced, which decreases as production increases.